1. Public Benefit Status of NGOs: Basic Questions Nilda Bullain European Center for Not-for-Profit Law (ECNL)

2. Public Benefit Status What is the purpose? How is it regulated? What does it mean? What are the benefits? Who decides? What are criteria? What are accountability requirements?

3. Goals of PBO legislation Basic goal: ensure consistency of tax benefits and accountability - PBO is an issue of fiscal regulation. Further possible goals: Encourage flow of resources to NGOs – e.g. private giving (Hungary) Facilitate state-NGO relationship – e.g. contracting (Hungary, Poland) Facilitate relationship between NGOs and public – image building for sector (Poland)

4. Regulatory context Tax legislation (e.g. Germany, Netherlands) Law/s on foundations & associations (e.g. Bulgaria) Specific laws (e.g. Hungary, Poland, Latvia)

5. Public Benefit Status Public benefit status should be voluntary. Public benefit status should not be mandatory to conduct public benefit activities. Certain benefits, i.e., tax and fiscal benefits, are usually granted to public benefit organizations. Public benefit organizations have a corresponding obligation to comply with accountability rules.

6. Definition of “Public Benefit” Enumeration of types of activities that benefit the public A “catch-all” category (open ended list) Criteria related to beneficiaries –Public at large –The needy –Non-exclusive services (in case of associations) Non-profit distribution constraint and possibly further financial restrictions (e.g. level of salary of staff)

7. Benefits Afforded to PBOs Tax Benefits –Exemptions from income, profits, property, gift, inheritance, and value-added taxes –Customs duties exemptions –Tax-benefited donations (tax deductions for donors who give to PBOs) Preferred status for Government funding and contracting Use of public property Other benefits –alternative military service, free media air time, recognition of volunteers

8. Decision Making Tax authorities (Finland, Germany, Greece) One ministry (Slovakia, Bulgaria) Several ministries (Romania, Slovenia) Courts (Hungary, Poland) Public Benefit Commission (UK, Moldova) Government decree (Belgium, France)

9. Tax authorities ADVANTAGES administrative convenience special expertise if there is separate department consistency DISADVANTAGES conflict between duty to maximize budget revenue and to grant exemptions lack of expertise if overburdened

10. One ministry ADVANTAGES consistency specialized expertise if separate department DISADVANTAGES centralized access potential for discretionary / political decisions

11. Line ministries ADVANTAGES specialized expertise good for practical arrangements (e.g. contracts) DISADVANTAGES inconsistent case handling potential for discretionary / political decisions gaps in the jurisdiction centralized access

12. Courts ADVANTAGES politically independent accessible for NGOs across the country DISADVANTAGES overburdened - slow processing takes time to develop special expertise

13. Public Benefit Commission ADVANTAGES NGO representation specialized expertise consistency easier communication with NGOs DISADVANTAGES challenge of proper mechanism to delegate or elect NGO representatives can be politically sensitive (legitimacy) expensive centralized access

14. Special Problems of PBO Regulation Problems associated with beneficiaries –Who is entitled to benefit -- the public at large or some segment of it? –How to ensure that organizations obtain public benefit status for serving only classes of “deserving” beneficiaries? –What to do about services that by definition benefit all regardless of individual need (i.e., vaccination programs, schools)? –Is public benefit status appropriate for certain activities that benefit only organization members (i.e., associations of pensioners, associations of persons suffering from a particular disease)?

15. Special Problems of PBO Regulation Problems associated with activities –For activities that do not in all circumstances benefit the public (i.e., health care, education, economic development, culture), how to define “public benefit?” Health: Cosmetic surgery, laser eye surgery? Education: Specialized training, e.g., language school? Economic Development: commercial properties? Culture: Popular music v. symphony? Commercial v. Art films?

16. Accountability Requirements To whom? (Supervision) On what? (Extent of supervision) How? (Forms of reporting) Public Access Balancing Bureaucracy

17. Supervisory Bodies Internal Accountability (Boards – Supervisory Boards) Supervising Agency (same or different from registration agency) Tax Authorities Donors (government / private) Other agencies (e.g.licensing, labor)

18. Extent of Supervision Reporting on Activities and Finances Transparency: how do we do things? Accountability: what do we achieve by doing things? Self-declaration or inspection?

19. Forms of Supervision Regular (annual) written reports Audit requirements Monitoring activities On-site inspection Cost-benefit analysis needed!

20. Public Access Record keeping Publishing reports Limits: –Protection of business interests –Privacy considerations Financial burden on PBO

21. Balancing Bureaucracy Reasonable level of detail (comparable to requirements from business companies) Differentiation by size (income level) Minimized financial burden on NGO